Business activity across Scotland’s private sector contracted again in September, according to the latest Royal Bank of Scotland Purchasing Managers Index (PMI) data.
However, companies increased employment for the 18th successive month.
The seasonally adjusted headline Royal Bank of Scotland Business Activity Index — a measure of combined manufacturing and service sector output — was little-changed from 47.8 in August at 48.0, signalling a second consecutive month of contraction.
New business received at Scottish private sector companies contracted for the third month running during September.
“The rate of reduction quickened on the month and was solid overall,” said the report.
“Inflationary pressures and the cost-of-living crisis were primarily linked to the latest downturn.
“At the sectoral level, manufacturing firms reported the softest decline in factory orders in three months, while services providers reported their first contraction since March 2021.
“Amid soaring prices and recession fears, overall activity expectations weakened for the second consecutive month in Scotland’s private sector in September.
“Business confidence hit a 28-month low, posting below the average recorded over the series history and much weaker than the UK-wide average.
“As has been the case since April 2021, employment across Scotland’s private sector increased in September.
“According to anecdotal evidence, successful hiring was in part linked to fresh graduates entering the workforce.
“While the respective seasonally adjusted index improved marginally from the that seen in August, it was the second-lowest reading in 17 months.
“The pace of employment growth in Scotland was softer than the UK average.”
Judith Cruickshank, Chair, Scotland Board, Royal Bank of Scotland, said: “Business activity and new orders continued to decrease across the Scottish private sector during September, thereby stretching the current runs of contraction to two and three months respectively.
“The squeeze on customer disposable incomes amid a high inflation environment underpinned the latest downturn in output and new business.
“Despite falling business requirements, firms raised employment for the eighteenth successive month, albeit at a moderate pace.
“The combination of a drop in new work and expanding workforces allowed firms to work through their backlogs.
“The post-pandemic boom is clearly at an end, as the ongoing cost-of-living crisis plays an increasingly important role. Moreover, the 12-month outlook continues to weaken.”